401(k) Investment Options

Most 401(k) plans offer a number of investment options for your money. A typical plan may offer six–to–eight options, but some offer an even broader range. If the plan allows you to direct the investments in your account, it's up to you to decide how to divide your money among the available options. The choices you make may have a tremendous impact on the ultimate value of your 401(k), so it just makes good sense to educate yourself about the potential risks and rewards of each type of financial vehicle available to you. You may put your money in just one option or you may divide your contributions among various options - some with higher risk and some with lower risk. Among the possibilities that may be available to you are the following:

Stable Value Funds.
These funds are designed to provide consistent, predictable growth over the long term. Sometimes called the “Fixed Fund” or “Guaranteed Fund,” these funds are typically backed by contracts issued by insurance companies, such as “Guaranteed Interest Contracts” or “GICs.” This option is generally considered lower risk and is guaranteed by the issuing insurance company, but fixed interest rates and rising inflation can erode its earning power. Be sure to check the financial health of the companies issuing the GICs and other contracts. Firms such as Moody’s, A.M. Best or Standard & Poor’s, issue financial ratings of insurance companies.

Company Stock.
By selecting your employer’s stock, you acquire an ownership interest in the company. Buying the stock of any single company—including your employer, however, carries a very high degree of risk and generally should represent only a small portion of your investment portfolio.

Mutual Funds.
These options pool money from many investors and can invest it in various securities such as stocks, bonds and money market instruments. They are designed to help reduce (but not eliminate) risk. If you further diversify by purchasing shares in more than one plan option, your risk may be reduced even more. Among the types of accounts that may be available to you in your 401(k) plan are: